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Share Name Share Symbol Market Type Share ISIN Share Description
Lancashire Holdings Limited LSE:LRE London Ordinary Share BMG5361W1047 COM SHS USD0.50
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -6.00 -0.83% 716.00 716.50 718.00 735.50 715.00 735.50 228,543 16:35:20
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Nonlife Insurance 371.1 90.1 44.5 16.5 1,747

Lancashire Hld Ltd Lancashire Holdings Limited Q2 2020 Earnings Release

29/07/2020 7:00am

UK Regulatory (RNS & others)


 
TIDMLRE 
 
LANCASHIRE HOLDINGS LIMITED 
 
                                 29 July 2020 
 
                               Hamilton, Bermuda 
 
Lancashire Holdings Limited ("Lancashire" or "the Group") today announces its 
results for the six months ended 30 June 2020. 
 
Highlights: 
 
  * Resilient business model and operational capabilities despite COVID-19 
    global disruption; high productivity maintained. 
  * Gross premiums written increased by 15.3% year on year to $495.5 million, 
    ahead of rate, with the Group Renewal Price Index of 111%. 
  * Strong underlying underwriting performance, with a combined ratio of 88.9% 
    absent the COVID-19 loss estimate (106.9% including COVID-19). 
  * Investments rebounded in Q2, resulting in total net investment return of 
    1.3% for the six months ended 30 June 2020. 
  * Interim dividend of $0.05 per common share. 
 
                                                      Six months ended 
 
                                                  30 June 2020     30 June 2019 
 
Financial highlights ($m) 
 
Gross premiums written                                495.5            429.6 
 
Net premiums written                                  282.5            222.6 
 
Underwriting income                                    39.4             79.4 
 
(Loss) profit before tax                              (23.0)            40.5 
 
Comprehensive (loss) income1                          (14.7)            68.7 
 
Financial ratios 
 
Total investment return (including internal             1.3  %           3.2  % 
currency hedging) 
 
Net loss ratio                                         57.4  %          34.5  % 
 
Combined ratio                                        106.9  %          86.6  % 
 
1 These amounts are attributable to Lancashire and exclude non-controlling 
interests. 
 
Alex Maloney, Group Chief Executive Officer, commented: 
 
"The global COVID-19 pandemic has presented a difficult set of threats to our 
health, our societies and our economies which remain both fluid and uncertain. 
 
Once again, I would like to thank all of our people at Lancashire for showing 
their continued creativity and commitment, which has been so central to 
demonstrating a robust operational flexibility and resilience, since 
successfully moving to a home working environment in March 2020. This nimble 
"can do" culture within our business has given Lancashire the resources to 
continue to meet the needs of our clients and their brokers against this 
unprecedented backdrop. Our underlying business has performed very well during 
this period and we have been able to respond rapidly to take advantage of the 
improving (re)insurance market, generating a 15% increase in gross premiums 
written in the first half of the year. 
 
In the face of the challenges generated by the COVID-19 pandemic to both sides 
of the balance sheet, there has been a retrenchment in (re)insurance market 
risk capital and capacity. In the year to 30 June 2020, we have witnessed 
double-digit percentage rate increases in many of our lines of business and 
accelerated rating dislocation in the catastrophe exposed reinsurance lines, 
resulting in rises in the range of 20%-30% for 1 June renewals in Florida. I 
believe that the economic fundamentals now dictate that this pricing trend is 
likely to strengthen throughout 2020 and into 2021 across a number of our 
business lines, and that current market conditions present an attractive 
opportunity for growth consistent with our strategy of deploying capital in 
line with the insurance market cycle. 
 
We were pleased to have executed a successful equity capital raise as announced 
on 10 June 2020. We took this step to allow us to deploy capital to take 
advantage of the growth opportunities presented by the improving pricing 
environment. I would like to thank our existing and new shareholders for their 
strong support for the capital raise. 
 
The effects of COVID-19 as a loss event to the insurance and reinsurance 
markets remain both ongoing and uncertain. For Lancashire, the current 
estimated impact of the COVID-19 loss event has been assessed consistent with 
our usual internal processes for deriving ultimate loss estimates, albeit that 
there is higher uncertainty with this event. During the second quarter of 2020, 
we increased our COVID-19 loss estimate to approximately $42 million, from 
approximately $35 million, net of reinsurance and reinstatement premiums. As 
noted in the our Q1 trading statement, Lancashire does not write the following 
lines of business: travel insurance; trade credit; accident and health; 
Directors' and Officers' liability; medical malpractice; and long-term life. 
The Group also has minimal exposure to mortgage business and is exposed to a 
small number of event cancellation contracts. 
 
In a rapidly changing market, we are seeing attractive opportunities to develop 
many of our existing lines of business and to establish new ones. Our business 
is well positioned to grow our underwriting portfolio and to develop 
opportunities to improve the risk adjusted returns for our business and our 
investors." 
 
Natalie Kershaw, Group Chief Financial Officer, commented: 
 
"For the first half of 2020 we generated an underwriting profit of $39.4 
million and an overall comprehensive loss of $14.7 million. Our financial 
results were impacted by the COVID-19 losses, plus a number of late reported 
attritional claims from prior years. Excluding COVID-19 we did not incur any 
new major losses in the first half of the year and we have seen significant 
premium growth across all our underwriting segments. Our investment strategy 
remains conservative and whilst our portfolio was impacted by the volatility 
which occurred during the first quarter of 2020 as a result of the global 
pandemic, I am pleased to note that for the year to 30 June 2020 our portfolio 
recovered to generate a positive return of 1.3%. 
 
In line with our stated ordinary dividend policy, on 28 July we declared an 
ordinary interim dividend of $0.05 per share." 
 
Underwriting results 
 
                                                  Six months ended 
 
Gross premiums written               2020     2019    Change    Change      RPI 
 
                                      $m       $m       $m         %         % 
 
Property                            300.1    268.5     31.6      11.8       107 
 
Energy                               91.7     76.4     15.3      20.0       110 
 
Marine                               53.5     45.4      8.1      17.8       113 
 
Aviation                             50.2     39.3     10.9      27.7       121 
 
Total                               495.5    429.6     65.9      15.3       111 
 
Gross premiums written increased by 15.3% in the first six months of 2020 
compared to the same period in 2019. The Group's four principal segments, and 
the key market factors impacting them, are discussed below. 
 
The increase in property gross premiums written was driven primarily by new 
business across all of the property classes, with rate and exposure increases 
also a strong contributor to the growth. Compared to the prior year, the second 
quarter renewal season was particularly strong, and saw the Group benefit from 
the hardening pricing environment. This contributed to significant growth in 
the property catastrophe class of business in the second quarter. These 
increases were partially offset by a reduction of premiums in the political 
risk class, which is largely a non-renewing book, plus a reduced level of 
reinstatement premium compared to the same period in 2019. 
 
Energy gross premiums written increased primarily due to new business and rate 
and exposure increases in the upstream energy, downstream energy and power 
classes of business. 
 
The increase in marine gross premiums written was primarily due to rate and 
exposure increases across all lines of business supported by new business 
growth in the marine cargo and the marine hull classes of business. The marine 
segment also benefited from exposure increases on policies bound in prior 
underwriting years. 
 
Although the first half of the year is not a major renewal period for the 
aviation segment, we saw a significant increase in gross premiums written 
primarily due to new business and rate increases in the aviation deductible and 
the aviation hull and liability classes of business, as well as exposure 
increases on policies bound in prior underwriting years in the AV52 class. 
 
                                    ******* 
 
Ceded reinsurance premiums increased by $6.0 million, or 2.9%, in the first six 
months of 2020 compared to the same period in 2019. The increased spend was 
primarily due to cover purchased for newer classes of business. There was also 
increased outwards quota share reinsurance spend as a result of the higher 
inwards gross premiums written in the associated classes of business. These 
increases were largely offset by lower outwards reinstatement premiums compared 
to the prior year and a lower ceding percentage applied on some of the outwards 
quota share contracts purchased. 
 
                                  ******* 
 
The Group's net loss ratio for the first six months of 2020 was 57.4% compared 
to 34.5% for the same period in 2019. The accident year loss ratio for the 
first six months of 2020, including the impact of foreign exchange 
revaluations, was 55.4% compared to 40.5% for the same period in 2019. 
Excluding the impact of COVID-19, the Group's net loss ratio was 40.0% and the 
accident year loss ratio was 38.2%. 
 
As at 30 June 2020, the Group's COVID-19 ultimate loss estimate, net of 
reinsurance and reinstatement premiums, amounted to approximately $42 million. 
This arose primarily from exposures within our property segment. Given the 
ongoing nature of the COVID-19 pandemic and the uncertain impact on the 
insurance industry, the Group's actual ultimate loss may vary, perhaps 
materially, from the current estimate. The final settlement of all of these 
claims is likely to take place over a considerable period of time. 
 
Prior year unfavourable development for 2020 was $5.1 million, compared to 
$15.9 million of favourable development for the same period in 2019. The 
unfavourable development during the first six months of 2020 was primarily 
driven by a number of late reported losses from the 2019 accident year, reserve 
deterioration on a couple of marine claims in the 2017 and 2019 accident years, 
in addition to adverse development on the 2010 New Zealand earthquake in the 
property segment. The favourable development during the first six months of 
2019 was primarily due to general IBNR releases across most lines of business, 
offset somewhat by 2018 accident year claims in our property and energy 
segments. 
 
The table below provides further detail of the prior years' loss development by 
class, excluding the impact of foreign exchange revaluations. 
 
                                                          Six months ended 
 
                                                              2020        2019 
 
                                                                $m          $m 
 
Property                                                   (3.7)        4.8 
 
Energy                                                     11.6         1.1 
 
Marine                                                    (14.5)        7.2 
 
Aviation                                                    1.5         2.8 
 
Total                                                      (5.1)       15.9 
 
Note: Positive numbers denote favourable development. 
 
The table below provides further detail of the prior years' loss development by 
accident year, excluding the impact of foreign exchange revaluations. 
 
                                                           Six months ended 
 
                                                               2020        2019 
 
                                                                 $m          $m 
 
2010 accident year and prior                                (5.6)        4.3 
 
2011 accident year                                           0.3         1.9 
 
2012 accident year                                           0.3         0.5 
 
2013 accident year                                          (0.2)        0.5 
 
2014 accident year                                          (0.5)       (0.2) 
 
2015 accident year                                           0.5           - 
 
2016 accident year                                           0.4         9.0 
 
2017 accident year                                          (5.2)       10.0 
 
2018 accident year                                          14.8       (10.1) 
 
2019 accident year                                          (9.9)          - 
 
Total                                                       (5.1)       15.9 
 
Note: Positive numbers denote favourable development. 
 
The ratio of IBNR to total net loss reserves was 34.8% at 30 June 2020 compared 
to 34.8% at 30 June 2019. 
 
Investments 
 
Net investment income, excluding realised and unrealised gains and losses, was 
$14.9 million for the first six months of 2020, a decrease of 24.0% from the 
same period in 2019. Total investment return, including net investment income, 
net other investment income, net realised gains and losses, impairments and net 
change in unrealised gains and losses, was a gain of $22.0 million for the 
first six months of 2020 compared to a gain of $57.1 million for the first six 
months of 2019. 
 
The Group's investment portfolio returned 1.3% for the first six months of 
2020. As previously reported, the first quarter of 2020 produced a negative 
investment return of 1.9% given market volatility due to the COVID-19 pandemic, 
which then largely reversed in the second quarter resulting in quarterly gains 
of 3.3%. The second quarter gains were seen across all asset classes that 
benefited from significant U.S. fiscal stimuli. Fixed maturities recouped all 
of the losses from the first quarter, with hedge funds, bank loans and private 
debt funds still showing small losses on a year to date basis. 
 
Returns in the first six months of 2019 were driven by a strong equity market 
combined with both a decrease in treasury yields and a narrowing of credit 
spreads. This resulted in positive performance in all asset classes, 
particularly in the bank loan, equity and hedge fund portfolios. 
 
The managed portfolio was as follows: 
 
                                      As at              As at              As at 
 
                               30 June 2020   31 December 2019       30 June 2019 
 
Fixed maturity                      81.0  %            79.0  %            82.1  % 
securities 
 
Cash and cash                       11.8  %            11.4  %             6.9  % 
equivalents 
 
Hedge funds                          4.5  %             8.7  %             9.5  % 
 
Private investment funds             2.7  %             0.9  %               - 
 
Equity securities                      -                  -                1.5  % 
 
Total                              100.0  %           100.0  %           100.0  % 
 
Key investment portfolio statistics for our fixed maturities and managed cash 
were: 
 
                                      As at              As at              As at 
 
                               30 June 2020   31 December 2019       30 June 2019 
 
Duration                          1.9 years          1.8 years          1.8 years 
 
Credit quality                          AA-                 A+                 A+ 
 
Book yield                           1.8  %             2.4  %             2.7  % 
 
Market yield                         1.1  %             2.1  %             2.4  % 
 
Third Party Capital Management 
 
The total contribution from third party capital activities consisted of the 
following items: 
 
                                                          Six months ended 
 
                                                              2020       2019 
 
                                                                $m         $m 
 
Lancashire Capital Management underwriting fees             2.7        1.9 
 
Lancashire Syndicates' fees & profit commission             0.8        0.9 
 
Total other income                                          3.5        2.8 
 
Share of profit of associate                                1.1        0.1 
 
Total net third party capital management income             4.6        2.9 
 
The higher Lancashire Capital Management underwriting fees in 2020 reflect the 
increased level of premiums under management compared to 2019. The share of 
profit of associate reflects Lancashire's equity interest in the Lancashire 
Capital Management managed vehicle. 
 
Other operating expenses 
 
Other operating expenses were $55.1 million in the first six months of 2020 
compared to $50.8 million in the first six months of 2019. An increase in 
headcount, general salary increases and variability around incentive pay led to 
an increase in employment costs. This was partly offset by a reduction in other 
operating expenses and the favourable impact from the depreciation of Sterling 
foreign exchange rates relative to the prior period. 
 
Equity based compensation 
 
The equity based compensation expense was $7.0 million in the first six months 
of 2020 compared to $3.8 million in the first six months of 2019. The equity 
based compensation charge was driven by anticipated vesting levels of active 
awards based on current performance expectations. 
 
Capital 
 
On 10 June 2020 a total of 39,568,089 new common shares in Lancashire were 
placed at a price of 700 pence per share, raising proceeds of $340.3 million 
for the Company. The shares issued represented approximately 19.5% of the 
issued common share capital of Lancashire prior to the placing. 
 
As at 30 June 2020, total capital available to Lancashire was $1.830 billion, 
comprising shareholders' equity of $1.506 billion and $323.7 million of 
long-term debt. Tangible capital was $1.675 billion. Leverage was 17.7% on 
total capital and 19.3% on total tangible capital. Total capital and total 
tangible capital as at 30 June 2019 were $1.445 billion and $1.291 billion 
respectively. 
 
Per share data 
 
                                                       Six months ended 
 
                                                   30 June 2020     30 June 2019 
 
Fully converted book value per share                      $6.16            $5.52 
 
Return on equity1                                       7.2  %            6.9  % 
 
Return on equity excluding the impact of the           (1.0  %)           6.9  % 
capital raise1 
 
Dividends per common share for the financial          $0.05             $0.05 
year2 
 
Diluted (loss) earnings per share                    ($0.13)            $0.19 
 
1  Return on equity is defined as the change in fully converted book value per 
share, adjusted for dividends. See the section headed "Alternative Performance 
Measures" below for further detail on how the Group defines return on equity. 
 
2   See the section headed "Dividends" below for the Record Date and Dividend 
Payment Date. 
 
Dividends 
 
Lancashire announces that on 28 July 2020 its Board of Directors declared an 
interim dividend for 2020 of $0.05 (approximately GBP0.04) per common share, 
which will result in an aggregate payment of approximately $12.1 million. The 
dividend will be paid in Pound Sterling on 11 September 2020 (the "Dividend 
Payment Date") to shareholders of record on 14 August 2020 (the "Record Date") 
using the GBP / $ spot market exchange rate at 12 noon London time on the Record 
Date. 
 
Shareholders interested in participating in the dividend reinvestment plan 
("DRIP"), or other services including international payment, are encouraged to 
contact the Group's registrars, Link Asset Services, for more details at: 
https://www.linkassetservices.com/shareholders-and-investors/ 
shareholder-services-uk. 
 
Financial Information 
 
The Unaudited Condensed Interim Consolidated Financial Statements for the six 
months ended 30 June 2020 and the 2020 half year Financial Supplement are 
published on Lancashire's website at www.lancashiregroup.com . 
 
Analyst and Investor Earnings Conference Call 
 
There will be an analyst and investor conference call on the results at 1:00pm 
UK time / 9:00am Bermuda time / 8:00am EDT on Wednesday 29 July 2020. The 
conference call will be hosted by Lancashire management. 
 
Participant Access: 
 
Dial in 5-10 minutes prior to the start time using the number / confirmation 
code below: 
 
United Kingdom Toll-Free: 08003589473 
 
United Kingdom Toll: +44 3333000804 
 
United States Toll-Free: +1 855 85 
70686 
 
United States Toll: +1 6319131422 
 
PIN code: 46831254# 
 
URL for additional international dial in numbers: https:// 
events-ftp.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf 
 
The call can also be accessed via webcast, for registration and access: https:/ 
/onlinexperiences.com/Launch/QReg/ShowUUID=548AF467-7210-41FE-83C0-4FC47E9F9DFA 
 
A webcast replay facility will be available for 12 months and accessible at: 
 
https://www.lancashiregroup.com/en/investors/ 
results-reports-and-presentations.html 
 
For further information, please contact: 
 
Lancashire Holdings Limited 
 
Christopher Head                       +44 20 7264 4145 
                                       chris.head@lancashiregroup.com 
 
Jelena Bjelanovic                      +44 20 7264 4066 
                                       jelena.bjelanovic@lancashiregroup.com 
 
FTI Consulting                         +44 20 37271046 
 
Edward Berry                           Edward.Berry@FTIConsulting.com 
 
Tom Blackwell                          Tom.Blackwell@FTIConsulting.com 
 
About Lancashire 
 
Lancashire, through its UK and Bermuda-based operating subsidiaries, is a 
provider of global specialty insurance and reinsurance products. The Group 
companies carry the following ratings: 
 
                                 Financial      Financial      Long Term 
                                 Strength       Strength       Issuer 
                                 Rating(1)      Outlook(1)     Rating(2) 
 
A.M. Best                        A (Excellent)  Stable         bbb+ 
 
S&P Global Ratings               A-             Stable         BBB 
 
Moody's                          A3             Stable         Baa2 
 
(1) Financial Strength Rating and Financial Strength Outlook apply to 
Lancashire Insurance Company Limited and Lancashire Insurance Company (UK) 
Limited. 
 
(2) Long Term Issuer Rating applies to Lancashire Holdings Limited. 
 
Lancashire Syndicates Limited benefits from Lloyd's ratings: A.M. Best: A 
(Excellent); S&P Global Ratings: A+ (Strong); and Fitch: AA- (Very Strong). 
 
Lancashire has capital of approximately $1.8 billion and its common shares 
trade on the premium segment of the Main Market of the London Stock Exchange 
under the ticker symbol LRE. Lancashire has its head office and registered 
office at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda. 
 
For more information, please visit Lancashire's website at 
www.lancashiregroup.com. 
 
The Bermuda Monetary Authority ("BMA") is the Group Supervisor of the 
Lancashire Group with effect from 1 January 2019. 
 
Lancashire Insurance Company Limited is regulated by the BMA, with its 
registered office at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda. 
 
Lancashire Insurance Company (UK) Limited is authorised by the Prudential 
Regulation Authority ("PRA") and regulated by the Financial Conduct Authority 
("FCA") and the PRA, with its registered office at Level 29, 20 Fenchurch 
Street, London EC3M 3BY, United Kingdom. 
 
Lancashire Syndicates Limited is authorised by the PRA and regulated by the FCA 
and the PRA. It is also authorised and regulated by Lloyd's, with its 
registered office at Level 29, 20 Fenchurch Street, London EC3M 3BY, United 
Kingdom. 
 
Lancashire Capital Management Limited is regulated by the BMA, with its 
registered office at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda. 
 
This release contains information, which may be of a price sensitive nature 
that Lancashire is making public in a manner consistent with the EU Market 
Abuse Regulation and other regulatory obligations. The information was 
submitted for publication, through the agency of the contact persons set out 
above, at 07:00 BST on 29 July 2020. 
 
Alternative Performance Measures 
 
As is customary in the insurance industry, the Group also utilises certain 
non-GAAP measures ("Alternative Performance Measures" or "APMs") in order to 
evaluate, monitor and manage the business and to aid users' understanding of 
the Group.  In compliance with the Guidelines on APMs of the European 
Securities and Markets Authority, we give information on APMs in the table 
below. This information has not been audited. 
 
Management believes that the APMs included in this release are important for 
understanding the Group's overall results of operations and may be helpful to 
investors and other interested parties who may benefit from having a consistent 
basis for comparison with other companies within the industry. However, these 
measures may not be comparable to similarly labeled measures used by companies 
inside or outside the insurance industry. In addition, the information 
contained herein should not be viewed as superior to, or a substitute for, the 
measures determined in accordance with the accounting principles used by the 
Group for its audited consolidated financial statements or in accordance with 
GAAP. 
 
The following APMs included in this release have not been prepared in 
accordance with the accounting principles used by the Group for its audited and 
/ or interim consolidated financial statements.  Below is an explanation of the 
definition of these APMs as well as information regarding their relevance: 
 
APM                       Definition                Relevance 
 
Net loss ratio            Ratio, in per cent, of    This ratio gives an 
                          net insurance losses to   indication of the amount 
                          net premiums earned.      of claims expected to be 
                                                    paid out per $1.00 of net 
                                                    premium earned in the 
                                                    financial year. 
 
Net acquisition cost      Ratio, in per cent, of    This ratio gives an 
ratio                     net insurance acquisition indication of the amount 
                          expenses to net premiums  expected to be paid out 
                          earned.                   to insurance brokers and 
                                                    other insurance 
                                                    intermediaries per $1.00 
                                                    of net premium earned in 
                                                    the financial year. 
 
Net expense ratio         Ratio, in per cent, of    This ratio gives an 
                          other operating expenses, indication of the amount 
                          excluding restricted      of operating expenses 
                          stock expenses, to net    expected to be paid out 
                          premiums earned.          per $1.00 of net premium 
                                                    earned in the financial 
                                                    year. 
 
Accident year loss ratio  The accident year loss    This ratio shows the 
                          ratio is calculated using amount of claims expected 
                          the accident year         to be paid out per $1.00 
                          ultimate liability        of net premium earned in 
                          re-valued at the current  an accident year. 
                          balance sheet date, 
                          divided by net premiums 
                          earned. 
 
Combined ratio            Ratio, in per cent, of    The Group aims to price 
                          the sum of net insurance  its business to ensure 
                          losses, net acquisition   that the combined ratio 
                          expenses and other        across the cycle is 
                          operating expenses to net significantly less than 
                          premiums earned.          100 per cent. 
 
Fully converted book      Calculated based on the   Shows the Group's net 
value per share ("FCBVS") value of the total        asset value on a diluted 
attributable to the Group shareholders' equity      per share basis for 
                          attributable to the Group comparison to the market 
                          and dilutive restricted   value per share. 
                          stock units as calculated 
                          under the treasury 
                          method, divided by, the 
                          sum of all shares and 
                          dilutive restricted stock 
                          units, assuming all are 
                          exercised. 
 
Return on equity ("RoE")  The internal rate of      The Group's aim is to 
                          return of the change in   maximise risk adjusted 
(RoE is also sometimes    FCBVS in the period, plus returns for its 
referred to as the change dividends accrued.        shareholders across the 
in FCBVS adjusted for     Tangible RoE attributable cycle. 
dividends)                to the Group excludes 
                          intangible assets from 
                          capital. 
 
Total investment return   Total investment return   The Group's primary 
                          measures investment       investment objectives are 
                          income and net realised   to preserve capital and 
                          and unrealised gains and  provide adequate 
                          losses produced by the    liquidity to support the 
                          Group's managed           Group's payment of claims 
                          investment portfolio.     and other obligations. 
                                                    Within this framework the 
                                                    Group aims for a degree 
                                                    of investment portfolio 
                                                    return. 
 
NOTE REGARDING RPI METHODOLOGY 
 
THE RENEWAL PRICE INDEX ("RPI") IS AN INTERNAL METHODOLOGY THAT MANAGEMENT USES 
TO TRACK TRS IN PREMIUM RATES OF A PORTFOLIO OF INSURANCE AND REINSURANCE 
CONTRACTS. THE RPI WRITTEN IN THE RESPECTIVE SEGMENTS IS CALCULATED ON A PER 
CONTRACT BASIS AND REFLECTS MANAGEMENT'S ASSESSMENT OF RELATIVE CHANGES IN 
PRICE, TERMS, CONDITIONS AND LIMITS AND IS WEIGHTED BY PREMIUM VOLUME. THE RPI 
DOES NOT INCLUDE NEW BUSINESS, TO OFFER A CONSISTENT BASIS FOR ANALYSIS. THE 
CALCULATION INVOLVES A DEGREE OF JUDGEMENT IN RELATION TO COMPARABILITY OF 
CONTRACTS AND THE ASSESSMENT NOTED ABOVE. TO ENHANCE THE RPI METHODOLOGY, 
MANAGEMENT MAY REVISE THE METHODOLOGY AND ASSUMPTIONS UNDERLYING THE RPI, SO 
THE TRS IN PREMIUM RATES REFLECTED IN THE RPI MAY NOT BE COMPARABLE OVER 
TIME. CONSIDERATION IS ONLY GIVEN TO RENEWALS OF A COMPARABLE NATURE SO IT DOES 
NOT REFLECT EVERY CONTRACT IN THE PORTFOLIO OF CONTRACTS. THE FUTURE 
PROFITABILITY OF THE PORTFOLIO OF CONTRACTS WITHIN THE RPI IS DEPENT UPON 
MANY FACTORS BESIDES THE TRS IN PREMIUM RATES. 
 
NOTE REGARDING FORWARD-LOOKING STATEMENTS: 
 
CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELLED LOSS 
SCENARIOS) MADE IN THIS RELEASE OR OTHERWISE THAT ARE NOT BASED ON CURRENT OR 
HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING, WITHOUT LIMITATION, 
STATEMENTS CONTAINING THE WORDS "BELIEVES", "ANTICIPATES", "PLANS", "PROJECTS", 
"FORECASTS", "GUIDANCE", "INTS", "EXPECTS", "ESTIMATES", "PREDICTS", "MAY", 
"CAN", "LIKELY", "WILL", "SEEKS", "SHOULD", OR, IN EACH CASE, THEIR NEGATIVE OR 
COMPARABLE TERMINOLOGY. ALL SUCH STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL 
FACTS INCLUDING, WITHOUT LIMITATION, THE FINANCIAL POSITION OF THE COMPANY AND 
ITS SUBSIDIARIES (THE "GROUP"), THE GROUP'S TAX RESIDENCY, LIQUIDITY, RESULTS 
OF OPERATIONS, PROSPECTS, GROWTH, CAPITAL MANAGEMENT PLANS AND EFFICIENCIES, 
ABILITY TO CREATE VALUE, DIVID POLICY, OPERATIONAL FLEXIBILITY, COMPOSITION 
OF MANAGEMENT, BUSINESS STRATEGY, PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE 
OPERATIONS (INCLUDING DEVELOPMENT PLANS AND OBJECTIVES RELATING TO THE GROUP'S 
INSURANCE BUSINESS) ARE FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING 
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT 
FACTORS THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE 
GROUP TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR 
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. 
 
THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO: THE ACTUAL DEVELOPMENT OF LOSSES 
AND EXPENSES IMPACTING ESTIMATES FOR CLAIMS WHICH ARISE AS A RESULT OF THE 
COVID-19 PANDEMIC WHICH IS AN ONGOING EVENT AS AT THE DATE OF THIS RELEASE, 
TYPHOON HAGIBIS WHICH OCCURRED IN THE FOURTH QUARTER OF 2019, HURRICANE DORIAN 
AND TYPHOON FAXAI WHICH OCCURRED IN THE THIRD QUARTER OF 2019, THE CALIFORNIAN 
WILDFIRES AND HURRICANE MICHAEL WHICH OCCURRED IN THE FOURTH QUARTER OF 2018, 
HURRICANE FLORENCE AND THE TYPHOONS THAT OCCURRED IN THE THIRD QUARTER OF 2018, 
HURRICANES HARVEY, IRMA AND MARIA AND THE EARTHQUAKES IN MEXICO THAT OCCURRED 
IN THE THIRD QUARTER OF 2017 AND THE WILDFIRES WHICH IMPACTED PARTS OF 
CALIFORNIA DURING 2017; THE IMPACT OF COMPLEX AND UNIQUE CAUSATION AND COVERAGE 
ISSUES ASSOCIATED WITH ATTRIBUTION OF LOSSES TO WIND OR FLOOD DAMAGE OR OTHER 
PERILS SUCH AS FIRE OR BUSINESS INTERRUPTION RELATING TO SUCH EVENTS; POTENTIAL 
UNCERTAINTIES RELATING TO REINSURANCE RECOVERIES, REINSTATEMENT PREMIUMS AND 
OTHER FACTORS INHERENT IN LOSS ESTIMATIONS; THE GROUP'S ABILITY TO INTEGRATE 
ITS BUSINESSES AND PERSONNEL; THE SUCCESSFUL RETENTION AND MOTIVATION OF THE 
GROUP'S KEY MANAGEMENT; THE INCREASED REGULATORY BURDEN FACING THE GROUP; THE 
NUMBER AND TYPE OF INSURANCE AND REINSURANCE CONTRACTS THAT THE GROUP WRITES OR 
MAY WRITE; THE GROUP'S ABILITY TO IMPLEMENT SUCCESSFULLY ITS BUSINESS STRATEGY 
DURING 'SOFT' AS WELL AS 'HARD' MARKETS; THE PREMIUM RATES WHICH MAY BE 
AVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN THE GROUP'S TARGETED BUSINESS 
LINES; THE POSSIBLE LOW FREQUENCY OF LARGE EVENTS; POTENTIALLY UNUSUAL LOSS 
FREQUENCY; THE IMPACT THAT THE GROUP'S FUTURE OPERATING RESULTS, CAPITAL 
POSITION AND RATING AGENCY AND OTHER CONSIDERATIONS MAY HAVE ON THE EXECUTION 
OF ANY CAPITAL MANAGEMENT INITIATIVES OR DIVIDS; THE POSSIBILITY OF GREATER 
FREQUENCY OR SEVERITY OF CLAIMS AND LOSS ACTIVITY THAN THE GROUP'S 
UNDERWRITING, RESERVING OR INVESTMENT PRACTICES HAVE ANTICIPATED; THE 
RELIABILITY OF, AND CHANGES IN ASSUMPTIONS TO, CATASTROPHE PRICING, 
ACCUMULATION AND ESTIMATED LOSS MODELS; INCREASED COMPETITION FROM EXISTING 
ALTERNATIVE CAPITAL PROVIDERS, INSURANCE LINKED FUNDS AND COLLATERALISED 
SPECIAL PURPOSE INSURERS, AND THE RELATED DEMAND AND SUPPLY DYNAMICS AS 
CONTRACTS COME UP FOR RENEWAL; THE EFFECTIVENESS OF THE GROUP'S LOSS LIMITATION 
METHODS; THE POTENTIAL LOSS OF KEY PERSONNEL; A DECLINE IN THE GROUP'S 
OPERATING SUBSIDIARIES' RATINGS WITH A.M. BEST, S&P GLOBAL RATINGS, MOODY'S OR 
OTHER RATING AGENCIES; INCREASED COMPETITION ON THE BASIS OF PRICING, CAPACITY, 
COVERAGE TERMS OR OTHER FACTORS; CYCLICAL DOWNTURNS OF THE INDUSTRY; THE IMPACT 
OF A DETERIORATING CREDIT ENVIRONMENT FOR ISSUERS OF FIXED MATURITY 
INVESTMENTS; THE IMPACT OF SWINGS IN MARKET INTEREST RATES, CURRENCY EXCHANGE 
RATES AND SECURITIES PRICES; CHANGES BY CENTRAL BANKS REGARDING THE LEVEL OF 
INTEREST RATES; THE IMPACT OF INFLATION OR DEFLATION IN RELEVANT ECONOMIES IN 
WHICH THE GROUP OPERATES; THE EFFECT, TIMING AND OTHER UNCERTAINTIES 
SURROUNDING FUTURE BUSINESS COMBINATIONS WITHIN THE INSURANCE AND REINSURANCE 
INDUSTRIES; THE IMPACT OF TERRORIST ACTIVITY IN THE COUNTRIES IN WHICH THE 
GROUP WRITES RISKS; A RATING DOWNGRADE OF, OR A MARKET DECLINE IN, SECURITIES 
IN THE GROUP'S INVESTMENT PORTFOLIO; CHANGES IN GOVERNMENTAL REGULATIONS OR TAX 
LAWS IN JURISDICTIONS WHERE THE GROUP CONDUCTS BUSINESS; LANCASHIRE HOLDINGS 
LIMITED OR ANY OF THE GROUP'S BERMUDIAN SUBSIDIARIES BECOMING SUBJECT TO INCOME 
TAXES IN THE UNITED STATES OR IN THE UNITED KINGDOM; THE IMPACT  OF THE CHANGE 
IN TAX RESIDENCE ON STAKEHOLDERS OF THE COMPANY; AND NEGOTIATIONS REGARDING THE 
UK'S RELATIONSHIP WITH THE EUROPEAN UNION ON THE GROUP'S BUSINESS, REGULATORY 
RELATIONSHIPS, UNDERWRITING PLATFORMS OR THE INDUSTRY GENERALLY, FOLLOWING THE 
UK'S EXIT FROM THE EUROPEAN UNION WHICH TOOK PLACE AT THE OF JANUARY 2020. 
 
ALL FORWARD-LOOKING STATEMENTS IN THIS RELEASE SPEAK ONLY AS AT THE DATE OF 
PUBLICATION. LANCASHIRE HOLDINGS LIMITED EXPRESSLY DISCLAIMS ANY OBLIGATION OR 
UNDERTAKING (SAVE AS REQUIRED TO COMPLY WITH ANY LEGAL OR REGULATORY 
OBLIGATIONS INCLUDING THE RULES OF THE LONDON STOCK EXCHANGE) TO DISSEMINATE 
ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT TO REFLECT ANY 
CHANGES IN THE GROUP'S EXPECTATIONS OR CIRCUMSTANCES ON WHICH ANY SUCH 
STATEMENT IS BASED. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS 
ATTRIBUTABLE TO THE GROUP OR INDIVIDUALS ACTING ON BEHALF OF THE GROUP ARE 
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THIS NOTE. PROSPECTIVE INVESTORS 
SHOULD SPECIFICALLY CONSIDER THE FACTORS IDENTIFIED IN THIS RELEASE WHICH COULD 
CAUSE ACTUAL RESULTS TO DIFFER BEFORE MAKING AN INVESTMENT DECISION. 
 
Consolidated statement of comprehensive (loss) income 
 
                                                           Six months   Six months 
 
                                                                 2020         2019 
 
                                                                   $m           $m 
 
Gross premiums written                                       495.5        429.6 
 
Outwards reinsurance premiums                               (213.0)      (207.0) 
 
Net premiums written                                         282.5        222.6 
 
Change in unearned premiums                                 (129.3)      (104.2) 
 
Change in unearned premiums on premiums ceded                 77.6         94.3 
 
Net premiums earned                                          230.8        212.7 
 
Net investment income                                         14.9         19.6 
 
Net other investment (losses) income                         (15.5)         7.3 
 
Net realised gains (losses) and impairments                   10.6         (0.2) 
 
Share of profit of associate                                   1.1          0.1 
 
Other income                                                   3.5          2.8 
 
Net foreign exchange losses                                   (3.9)        (2.3) 
 
Total net revenue                                            241.5        240.0 
 
Insurance losses and loss adjustment expenses                159.2        152.0 
 
Insurance losses and loss adjustment expenses                (26.8)       (78.6) 
recoverable 
 
Net insurance acquisition expenses                            59.0         59.9 
 
Equity based compensation                                      7.0          3.8 
 
Other operating expenses                                      55.1         50.8 
 
Total expenses                                               253.5        187.9 
 
Results of operating activities                              (12.0)        52.1 
 
Financing costs                                               11.0         11.6 
 
(Loss) profit before tax                                     (23.0)        40.5 
 
Tax charge                                                    (3.0)        (1.4) 
 
(Loss) profit after tax                                      (26.0)        39.1 
 
Non-controlling interests                                        -            - 
 
(Loss) profit after tax attributable to Lancashire           (26.0)        39.1 
 
Net change in unrealised gains/losses on investments          12.0         30.4 
 
Tax charge on net change in unrealised gains/losses on        (0.7)        (0.8) 
investments 
 
Other comprehensive income                                    11.3         29.6 
 
Total comprehensive (loss) income attributable to            (14.7)        68.7 
Lancashire 
 
Net loss ratio                                                57.4  %      34.5  % 
 
Net acquisition cost ratio                                    25.6  %      28.2  % 
 
Administrative expense ratio                                  23.9  %      23.9  % 
 
Combined ratio                                               106.9  %      86.6  % 
 
Basic (loss) earnings per share                          $   (0.13)   $    0.19 
 
Diluted (loss) earnings per share                        $   (0.13)   $    0.19 
 
Change in fully converted book value per share                 7.2  %       6.9  % 
 
Consolidated balance sheet 
 
                                                 As at 30    As at 30   As at 31 
                                                June 2020   June 2019   December 
                                                                            2019 
 
                                                       $m          $m         $m 
 
Assets 
 
Cash and cash equivalents                        496.5       232.8       320.4 
 
Accrued interest receivable                        7.3         6.6         7.2 
 
Investments                                    1,689.6     1,581.3     1,525.1 
 
Inwards premiums receivable from insureds and    459.1       425.4       350.5 
cedants 
 
Reinsurance assets 
 
- Unearned premiums on premiums ceded            167.1       151.0        89.5 
 
- Reinsurance recoveries                         323.1       306.4       327.5 
 
- Other receivables                               27.6        43.2        16.9 
 
Other receivables                                 33.3        56.2        51.7 
 
Investment in associate                           81.5        65.2       108.3 
 
Property, plant and equipment                      0.9         1.3         1.2 
 
Right-of-use asset                                16.8        19.5        18.2 
 
Deferred acquisition costs                        96.8        84.8        81.7 
 
Intangible assets                                154.5       153.8       154.5 
 
Total assets                                   3,554.1     3,127.5     3,052.7 
 
Liabilities 
 
Insurance contracts 
 
- Losses and loss adjustment expenses            888.6       884.1       874.5 
 
- Unearned premiums                              535.7       474.8       406.4 
 
- Other payables                                  26.4        40.8        27.4 
 
Amounts payable to reinsurers                    179.6       178.2       126.6 
 
Deferred acquisition costs ceded                  17.2        11.4        17.6 
 
Other payables                                    42.0        54.7        47.5 
 
Corporation tax payable                            1.6         2.1         2.4 
 
Deferred tax liability                            12.2        12.3         9.6 
 
Interest rate swap                                 1.3         1.4         1.1 
 
Lease liability                                   19.6        22.5        21.9 
 
Long-term debt                                   323.7       324.1       323.5 
 
Total liabilities                              2,047.9     2,006.4     1,858.5 
 
Shareholders' equity 
 
Share capital                                    121.3       101.0       101.5 
 
Own shares                                        (6.7)       (5.3)      (13.3) 
 
Other reserves                                 1,202.3       867.9       881.3 
 
Accumulated other comprehensive income            24.8        15.3        13.5 
 
Retained earnings                                164.4       141.9       210.6 
 
Total shareholders' equity attributable to     1,506.1     1,120.8     1,193.6 
equity 
shareholders of Lancashire 
 
Non-controlling interest                           0.1         0.3         0.6 
 
Total shareholders' equity                     1,506.2     1,121.1     1,194.2 
 
Total liabilities and shareholders' equity     3,554.1     3,127.5     3,052.7 
 
Basic book value per share                       $6.23       $5.57       $5.92 
 
Fully converted book value per share             $6.16       $5.52       $5.84 
 
Consolidated statement of cash flows 
 
                                                                 Six       Six 
                                                              months    months 
 
                                                                2020      2019 
 
                                                                  $m        $m 
 
Cash flows (used in) from operating activities 
 
(Loss) profit before tax                                     (23.0)     40.5 
 
Tax paid                                                      (1.2)        - 
 
Depreciation                                                   1.7       2.0 
 
Interest expense on long-term debt                             8.2       9.4 
 
Interest expense on finance leases                             0.6       0.7 
 
Interest and dividend income                                 (17.9)    (19.2) 
 
Net amortisation of fixed maturity securities                  1.6      (1.0) 
 
Equity based compensation                                      7.0       3.8 
 
Foreign exchange losses                                        0.1       2.0 
 
Share of profit of associate                                  (1.1)     (0.1) 
 
Net other investment losses (income)                          15.0      (7.3) 
 
Net realised losses (gains) and impairments                  (10.6)      0.2 
 
Net unrealised losses on interest rate swaps                   0.2       1.0 
 
Changes in operational assets and liabilities 
 
- Insurance and reinsurance contracts                        (10.1)    (51.2) 
 
- Other assets and liabilities                                14.3      (9.0) 
 
Net cash flows (used in) from operating activities           (15.2)    (28.2) 
 
Cash flows (used in) from investing activities 
 
Interest and dividends received                               19.0      19.4 
 
Purchase of property, plant and equipment                        -      (0.6) 
 
Purchase of underwriting capacity                                -         - 
 
Investment in associate                                       27.9       2.0 
 
Purchase of investments                                     (619.3)   (522.9) 
 
Proceeds on sale of investments                              458.4     639.6 
 
Net cash flows (used in) from investing activities          (114.0)    137.5 
 
Cash flows from (used in) financing activities 
 
Interest paid                                                 (8.3)     (9.4) 
 
Lease liabilities paid                                        (1.8)     (1.8) 
 
Proceeds from issuance of common shares                      340.3         - 
 
Dividends paid                                               (20.2)    (20.1) 
 
Dividends paid to minority interest holders                   (0.5)        - 
 
Distributions by trust                                        (0.7)     (1.0) 
 
Net cash flows from (used in) financing activities           308.8     (32.3) 
 
Net increase in cash and cash equivalents                    179.6      77.0 
 
Cash and cash equivalents at the beginning of year           320.4     154.6 
 
Effect of exchange rate fluctuations on cash and cash         (3.5)      1.2 
equivalents 
 
Cash and cash equivalents at end of period                   496.5     232.8 
 
 
 
END 
 

(END) Dow Jones Newswires

July 29, 2020 02:00 ET (06:00 GMT)

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